China hog prices plunge after farm building boom

Pigs are seen on a family farm in Xiaoxinzhuang village, Hebei province, China January 25, 2018. -- REUTERS

BEIJING — Chinese pig prices hit their lowest in nearly four years this week, plunging farmers in the world’s top pork market into the red and underscoring concerns that a rapid expansion of large pig farms in China has outpaced slowing demand growth.

The sudden downturn — one of the steepest declines over such a short period ever — will mark the first serious test for many companies that have rushed into pig farming in the last two years.

It will also slow imports of pork by the world’s top buyer, traders and analysts say. The price is set to recover when demand picks up later in the year but will come under renewed pressure in 2019 as more new farms start production, analysts say.

Live pig prices are now hovering just above 11 yuan ($1.74) per kilogram (kg.) in major producing areas such as Henan. That’s below average production costs, after plunging more than 20% from early January when they were close to 16 yuan per kg.

“The reason is very clear. There are a lot of pigs on the market,” said Feng Yonghui, chief researcher at trade Web site Soozhu.com.

The sudden plunge in prices is the result of conflicting trends in the industry over the last year. On the one hand, big producers have expanded rapidly to grow market share, but on the other, a government crackdown on pollution that intensified in 2017 shut many small farms, making it difficult to get an accurate picture of supply.

Monthly government data continues to show a drop in the number of breeding pigs, suggesting supply has not yet caught up with demand.

That kept market prices high throughout the winter and led Beijing to release some pork from its reserves. Though volumes released were small, it was another signal of insufficient supply that “misled” the market, said Pan Chenjun, senior analyst at Rabobank.

Abundant supplies became evident in the run-up to mid-February’s Lunar New Year festivities, China’s peak pork consumption period.

“Slaughterhouses took advantage of the increased supply to set prices, which led to growing price pressure in the market,” said Feng.

Prices in February in seven major provinces fell at their fastest pace on Reuters records going back to 2012. — Reuters